AmInvestment Bank maintains cautious outlook on property market

PETALING JAYA (July 15): AmInvestment Bank Bhd maintains a cautious outlook on the property market in the second half this year in view of the current situation - the spiking number of Covid-19 daily cases and extended lockdown that could cause a slower-than-expected recovery.

In a research note today, the investment bank is taking a neutral stance on the sector outlook as the local property market has been languishing over the last five to six years, since hitting an upswing in mid-2013.

Nevertheless, there are some encouraging signs, including developers’ achieved sales growth rate of 5% to 10% year-on-year (y-o-y) in the first quarter of 2021 via online booking platforms amid the pandemic, the willingness of developers to sacrifice margin by focusing on affordable residential segments in line with market demand as well as landbanking activities in prime areas with good public infrastructure and connectivity to Kuala Lumpur city centre.

On the developers’ efforts in expanding their affordable housing portfolios, AmInvestment Bank observed over the past three to four years, many developers have moved from higher-end products to affordable ones. 

“We are mindful that affordable housing typically commands low margins which could be crimped further by intensifying competition as this segment gets more crowded by the day,” it said.

However, the investment bank reckoned that companies under its coverage are established enough to compete with their peers given their savvy management teams and healthy balance sheet with net gearing ratios of 30% to 59%.

For instance, Mah Sing and Lagenda Properties are in net cash position. Hence, they have the ability to secure strategic landbanks with a reasonable cost-to-GDV ratio of between 10% and 20%.

In terms of lanbanking exercises, Mah Sing and UEM Sunrise have each acquired two plots in the Klang Valley while Sunway secured one. 

Meanwhile, AmInvestment Bank said even though loans applied for residential properties reached an all-time historical high in April 2021, reflecting improved consumer sentiments in the sector, banks’ average approval rate slid to only 34.2% from 37.4% a year ago. 

“We believe this is likely due to house buyers’ inability to qualify for a home mortgage given high debt service ratios (DSR) for newly-approved loans at 43% while the household debt-to-GDP ratio has risen to 93.3% as at Dec 2020 from 82.9% at Dec 2019,” said the report.

The DSR is calculated by dividing applicants’ debt service obligations by their incomes to assess borrowers’ risk profile (most banks observe a cap of 43% for the low-income group, and 71% for the middle-high income borrowers). 

Potential house buyers may have little room left to take on a home mortgage due to their existing debt service commitments (such as outstanding study, car or personal loans) while their incomes have not grown sufficiently during the pandemic. This was exacerbated by the softer job market as reflected in the still elevated unemployment rate of 4.7% in the first five months of 2021, said the report.

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